The future of American power

Changes in global politics, armed forces and economics means America has a new contender for supremacy, writes a historian of great powers


NOTHING HAS consumed foreign-policy thinkers over the years more than the question of whether the United States is in irreversible decline as a world power. 

The recent events in Afghanistan—which marks yet another American retreat from Asia—certainly feed that sentiment. 

But a longer-term issue for American policymakers is the steady rise of Chinese power. 

Is the country about to overtake America, and what are the best economic and military criteria to measure such a transition in world affairs? 

Is China not ridden with internal problems, only partially disguised by the clever public relations of an authoritarian state? 

Or is the era of PaxAmericana ending, to be replaced by the Asian century?

It's probably unwise to rush to an immediate “yes” to that last question. 

Much about America and the world remains the same as it was in the 1980s when I was writing “The Rise and Fall of the Great Powers” (Random House, 1987). 

It is also true that there were periods in the past 40 years when America’s relative position seemed to have picked up again—in the mid-1990s after the Soviet Union’s collapse and in 2003 after the crushing of Saddam Hussein, the leader of Iraq. 

Yet such recoveries were always short-lived, compared with several big things that have changed—and not to the advantage of the United States. 

Consider three significant and longer-term shifts: in international relations, military strength and economic power.

The first is that the strategic-political constellation of forces has changed since the bipolar, cold-war world of a half-century ago when America faced only a fading Soviet Union. 

The international system now comprises four or maybe five very large states. 

None of them can, either through hard power or soft power, compel the others to do what they don’t want to do.

There was already evidence of this shift towards a multipolar world when I was drafting the last chapter of “Rise and Fall” in the mid-1980s. 

But now, in the third decade of this century, the global landscape looks much more varied, with several large nation-states at the top (China, America, India and Russia), followed by the European Union and Japan, and even Indonesia and Iran.

This marks a very significant redistribution of world power, so it simply is not enough to claim, if it is correct, that America remains number one: for even if it is the biggest gorilla in the jungle, it is only one of a bunch of gorillas! 

And it is irrelevant to the argument to say that Russia’s position has shrunk even further than America’s, when both of them have lost ground relatively—which is, after all, what realist, great-power theory is about.

The second change is that America’s armed forces are considerably smaller and older than they were in the 1980s. 

Just how long, really, can the Air Force keep patching up and flying its remarkable 70-year-old B-52 bombers, which are older than all its active officers? 

And how long can the Navy keep refurbishing its 30-year-old Arleigh Burke destroyers? 

Even if it was only a temporary embarrassment to have the western Pacific denuded of aircraft-carriers last May when the USS Eisenhower group was covering the start of the Afghan withdrawal, the fact is that the Navy today has fewer operating carriers than it had 40 years ago.

As the Pentagon regularly deploys its ships to different regions, the country may simply not have enough of them to match its numerous global commitments. 

To the historian, then, America is looking rather like the old Habsburg model, possessing large though weary armed forces, stretched across too many regions. 

And America’s defeat in Afghanistan, leaving military equipment strewn across much of that country, also has a Habsburgian ring to it.

Meanwhile, China seems to be flexing its muscles everywhere. 

And behind the question of the size of America’s armed forces lurks a bigger issue: whether the era of weapons such as manned aircraft and the large surface warship is not passing and may be gone by 2040. 

One gets the hunch that, in some drone-dominated battlefield or pulsar-controlled ocean of the future, the odds between America and adversaries like China, Russia or Iran may shift because the advantage from its own better-trained soldiers will be no more. 

Military revolutions in the past tended to benefit the United States; the next one may not.

What if the Coronavirus Crisis Is Just a Trial Run?

By Adam Tooze

          Credit...Matt Chase

Almost two years since the novel coronavirus began to circulate through the human population, what lessons have we learned? 

And what do those lessons portend for future crises?

The most obvious is the hardest to digest: The world’s decision makers have given us a staggering demonstration of their collective inability to grasp what it would actually mean to govern the deeply globalized and interconnected world they have created. 

There is only one limited realm in which something like a concerted response has been managed: money and finance. 

But governments’ and central banks’ success in holding the world’s financial system together is contributing in the long run to inequality and social polarization. 

If 2020 was a trial run, we should be worried.

How did we get here? 

In a way, the failure was predictable. 

As instruments of coordination and cooperation, global institutions like the United Nations, the International Monetary Fund and the World Health Organization had proved fragile and toothless long before the pandemic. 

The explanation for this failure used to be geopolitical antagonism: Power blocs couldn’t come together when they had competing priorities and agendas. 

It was thus tempting to imagine that some common threat — perhaps an alien invasion — might make a reality of the United Nations.

The coronavirus, one might think, was precisely such an invasion. 

And yet faced with this common threat, cooperation failed. 

Rather than a concerted shutdown of global aviation, frontiers were closed on the fly; supplies of personal protective equipment were grabbed at airports; haphazard travel bans continue to this day.

With America in the lead, the world was more divided than ever. 

America’s failure to coordinate a response was no mere sideshow. 

Like it or not, this continental nation-state, with the world’s largest economy, facing Europe, South America and the Pacific, is constitutive of globalism as we know it. 

It was a horrible irony that Donald Trump, the first American president to repudiate this, was in the White House when a truly global crisis hit. 

That encouraged talk of Covid as the first “post-American” crisis. 

But America will have to diminish a lot more before we can count it out. 

What 2020 showed, in fact, was that America’s dysfunctions are the world’s problem.

Vaccines are a case in point. 

The development of Covid vaccines was a collective triumph of researchers, governments and businesses around the world. 

Mr. Trump’s Operation Warp Speed was the most successful of all. 

But that program was defined by the needs of the United States — not the world. 

Scandalously, the United States under Mr. Trump did not even join the United Nations’ Covax initiative. 

Even after vaccine rollout began in earnest in 2021, the United States continued to hoard doses.

The failure to develop a global vaccination program is not just dismaying. 

It ought also to be profoundly puzzling: It defies the self-interests of the richest countries in the world. 

Booster shots aside, the greater the volume of infection, the greater the risk of variants even more dangerous than Delta.

And the greater the economic damage, too. 

In July, the I.M.F. estimated that an investment of $50 billion in a comprehensive campaign for vaccination and other virus control efforts would generate some $9 trillion in additional global output by 2025 — a ratio of 180 to 1. 

What investment could hope to yield a higher rate of return? 

And yet none of the members of the Group of 20 have stepped up, not Europe, not the United States, not even China. 

Billions of people will be forced to wait until 2023 to receive even their first shot.

This failure is all the more glaring for another lesson that the pandemic revealed: Budget constraints don’t seem to exist; money is a mere technicality. 

The hard limits of financial sustainability, policed, we used to think, by ferocious bond markets, were blurred by the 2008 financial crisis. 

In 2020, they were erased.

Governments around the world issued debt as not seen since World War II, and yet interest rates plunged. 

As the private sector shut down, the public sector expanded. 

As government deficits grew, the monetary system responded elastically. 

Government spending made up for the loss of private incomes and spending.

This balancing of public and private spending works best if all countries are doing it simultaneously. 

This was one area where there was an alignment of national policies. 

In Europe, there was even a dramatic new phase of cooperation, with the launching of a 750 billion-euro recovery program funded, for the first time, by borrowing by Brussels rather than the European Union’s member states. 

Providing a supportive frame for this global expansion was Mr. Trump’s United States with its own gigantic fiscal and monetary expansion.

This was a surprise. 

Before 2020 there were conversations in the halls of the I.M.F. about whether a nationalist president and the flat-earthers in Congress would permit the Federal Reserve and the Treasury to play a leading role in a global financial crisis. 

Hank Paulson, George W. Bush’s Treasury secretary in 2008, refused to endorse Mr. Trump for just this reason. 

But when it came to it, Mr. Trump’s instincts all pushed in the right direction, at least on economic policy. 

If ever there was a president who took naturally to the idea of “fiat money,” it was Donald Trump. 

So long as his name was on the checks, more was better.

It helped that the response was led by professional central bankers. 

Global finance is a world with a clear hierarchy, with the Fed at the top, followed by the European Central Bank, the People’s Bank of China, the Bank of Japan and the Bank of England. 

But it is also a close-knit community with a shared mental map. 

Central bankers trade in electronic money that can be created at the tap of a keyboard. 

Creating it does not “cost” anything and does not require approval from elected legislatures. 

After 2008, tools like quantitative easing — the large-scale purchase of assets — were well oiled.

The world discovered that John Maynard Keynes was right when he declared during World War II that “anything we can actually do, we can afford.” 

The sheer scale of the action was intoxicating. 

Among the left wing of the Democratic Party, it generated excitement: If money was a mere technicality, what else could be done? 

Action on social justice, climate change, the Green New Deal, all seemed within reach.

But there were three interrelated problems.

First, the sense that government action had been liberated from the tyranny of finance was illusory. 

The interventions triggered in March 2020 were not free acts of creative political will. 

The central bankers were not buying government debt to help finance lockdown life-support checks. 

They were acting to rescue financial markets from melting down. 

“Too big to fail” has become a systemic imperative.

That meant, second, that the interventions were double-edged. 

Propping up the Treasury market enabled government spending on furlough schemes and paycheck protection plans to be funded in the normal way, by borrowing. 

But government IOUs are fuel for private speculation. 

When liquidity is flushed indiscriminately into the financial system, it inflates bubbles, generating new risks and outsize gains for those with substantial portfolios. 

Nowhere was this polarizing effect more pronounced than in the United States. 

While tens of millions struggled through the crisis, trillions of dollars piled up in the balance sheets of the wealthy.

Finally, the digital money creation was the easy bit. 

Keynes’s bon mot has a sting in its tail: We can afford anything we can actually do. 

The problem is agreeing on what to do and how to do it. 

In giving us a glimpse of financial freedom, 2020 also robbed us of pretenses and excuses. 

If we are not doing a global vaccine plan, it is not for lack of funds. 

It is because indifference, or selfish calculation — vaccinate America first — or real technical obstacles prevent us from “actually” doing it.

It turns out that budget constraints, in all their artificiality, had spared us from facing the all-too-limited willingness and capacity for collective action. 

Now if you hear someone arguing that we cannot afford to bring billions of people out of poverty or we cannot afford to transition the energy system away from fossil fuels, we know how to respond: Either you are invoking technological obstacles, in which case we need a suitably scaled, Warp Speed-style program to overcome them, or it is simply a matter of priorities. 

There are other things you would rather do.

The challenges won’t go away, and they won’t get smaller. 

The coronavirus was a shock, but a pandemic was long predicted. 

There is every reason to think that this one will not be a one-off. 

Whether the disease originated in zoonotic mutation or in a lab, there is more and worse where it came from. 

And it is not just viruses that we have to worry about, but also the mounting destabilization of the climate, collapsing biodiversity, large-scale desertification and pollution across the globe.

Looking back before 2020, it seemed that 2008 was the beginning of a new era of successive and interconnected disruptions, such as the global financial crisis, Mr. Trump’s election, and the trade and tech war with China. 

It all had a familiar ring to it. 

Great-power competition, nationalism and banking crises all harked back to the 19th and 20th centuries. 

Then came 2020. 

It has given us a glimpse of something radically new: the old tensions of politics, finance and geopolitics intersecting with a natural shock on a global scale.

The Biden administration declares that “America is back.” 

But to what is it returning? 

As recent events in Afghanistan demonstrate, President Biden is determined to clear the decks, brutally if necessary. 

As far as the Pentagon is concerned, at the top of the agenda is great-power competition with China — a 19th century writ large. 

But what of the interconnected global crises of the 21st century that cannot be attributed to a national antagonist? 

For those, the one model that we have is central bank financial market intervention — a form of crisis-fighting based on technical networks, rooted in existing hierarchies of power and backed by powerful self-interest. 

It is conservative, ad hoc and lacking in explicit political legitimacy. 

It tends to reinforce existing hierarchy and privilege.

The challenge for a progressive globalism fit for the next decades is both to multiply those crisis-fighting networks — into the fields of medical research and vaccine development, renewable energy and so on — and to make them more democratic, transparent and egalitarian.

Adam Tooze (@adam_tooze) is an economic historian at Columbia and the author of the forthcoming “Shutdown: How Covid Shook the World’s Economy,” from which this essay is adapted.

What China Must Do to Contain Evergrande Fallout

Biggest risk to China is from Evergrande’s small creditors, not its large ones

By Nathaniel Taplin and Jacky Wong

China’s second-largest real-estate developer by revenue—with liabilities equal to around 2% of the country’s gross domestic product—is in danger of going under. 

After weeks of ignoring Evergrande’s wobbles, on Monday Wall Street finally stood up and listened: the S&P 500 dropped 2% and global bond funds, some of them invested heavily in Chinese developers’ dollar debt, retreated. 

Evergrande must pay $83.5 million in bond interest on Thursday, and is fending off protests and court cases from its domestic suppliers, customers and investors.

A default on dollar debt or at least a deep haircut is likely. Large-scale financial turmoil in China isn’t inevitable. 

If Evergrande’s woes further infect the broader real-estate market or Beijing doesn’t act quickly enough to restructure the company’s businesses and its onshore debts in an orderly manner, it may not be far behind.

In years past, such a large, important firm would almost certainly have been bailed out. 

Housing is the third rail of China’s political economy—where most household wealth is parked, a giant liability for China’s banks, and tied to around a fifth of economic activity. 

But President Xi Jinping has demonstrated a far higher tolerance for economic risk than his immediate predecessors, in part because he has cowed potential rivals so effectively. 

Evergrande’s woes are a direct result of a new, steely-eyed policy forcing developers to meet tough metrics on debt instituted last year.

As long as onshore financial contagion is manageable, Xi may allow some bondholders—particularly foreign ones—to be wiped out in service of larger policy goals. 

And so far, signs of that broader onshore contagion are limited. 

One reason: many of Evergrande’s large domestic creditors like banks are owned by the government, which can both force them to absorb immediate losses and also tide them over with liquidity while working to engineer eventual recapitalizations. 

Beijing has repeatedly demonstrated its capacity to corral debtors and big creditors and force them to come to an agreement behind the scenes, as in the case of Baoshang Bank’s 2019 crisis.

Evergrande’s offshore bonds are trading at deeply distressed levels. 

And yields on the dollar bonds of some other large, highly indebted developers like Sunac have shot higher, too: Sunac’s June 2022 issue, which was trading at a 6% yield in early September, now yields 17%, according to FactSet. 

But, although onshore money-market rates have risen modestly, there are few signs of contagion to key bank funding instruments or to the onshore bond market more broadly outside of real estate.

The real problem isn’t Evergrande’s big creditors but the small ones and the damage to already-weak real-estate sentiment more broadly from an extended, messy reorganization. 

That could quickly translate into broader problems for the industry as a whole, the real economy and banks.

Evergrande has massive borrowings but it also owed, as of June, around $180 billion to individual homeowners, its contractors and others in the form of outstanding accounts payable and so-called contract liabilities—mostly unbuilt homes owed to buyers. 

More than half of its projects nationwide have been halted, according to local financial media outlet Caixin. 

And this comes as nationwide housing sales are already down 20% year over year by value in August.

A map showing Evergrande development projects in China in Beijing on Tuesday. PHOTO: ANDY WONG/ASSOCIATED PRESS

The last thing China’s real-estate market and its financial system need is a buyers’ strike from homeowners watching Evergrande customers get stiffed. 

To hit new regulatory targets by mid 2023, Chinese developers in aggregate need to shed 18 trillion yuan ($2.78 trillion) of liabilities over the next two years, according to Goldman Sachs. 

And that assumes no further land purchases over that time period. Robust housing sales will be needed, but unless Beijing acts swiftly to ensure that Evergrande’s customers get their due, arresting the steep drop in national housing sales may prove difficult.

The simplest solution would be a government-mediated takeover of Evergrande’s unfinished projects by a group of other developers in exchange for Evergrande’s existing inventory and massive land bank, lubricated with additional state finance. 

But with the land market already frozen up—transactions by value were down 90% in the first 12 days of September year over year, according to Nomura—developers are presumably dragging their feet. 

If the situation drags on and Evergrande has to keep pawning off its existing properties at fire-sale rates, that could also be a further drag on the property market as a whole, given how large the company is. 

Evergrande alone accounted for around 4% of the residential property market in 2020, according to Fitch Ratings.

The land market itself is another possible route for financial contagion, since land sales form such an important part of local government revenue in China. 

So-called local government financing vehicle (LGFV) bonds, used by local governments to get around formal budget constraints, account for a significant proportion of the market: around 30% of total outstanding onshore bond debt, after excluding formal government and policy bank bonds, according to Wind.

Clearly much depends on how quickly Beijing is able to assemble a coalition of developers to assume Evergrande’s contract liabilities or find another solution to avoid a disorderly sale of its assets and a big financial hit to its customers and suppliers.

If a solution does appear soon and Beijing acts to further ease overall monetary policy, there are some reasons for cautious optimism that China can still avoid a truly punishing property downturn. 

Prices in major coastal markets were still mostly rising in August, although many smaller so-called third- and fourth-tier markets are beginning to turn down. 

And property inventories nationwide are much lower, on average, than at the beginning of the last major housing downturn in 2015, which could help put a floor under prices if sentiment itself recovers a bit: one-and-a-half years of sales, according to ANZ Bank, against two-and-a-half years in 2015. 

Finally, although Chinese banks have large mortgage exposure, unlike in the U.S. Chinese mortgages are generally “full recourse,” meaning debtors remain on the hook for payments even after losing their home. 

That may help keep delinquencies in check, even if prices do fall sharply.

A significant hit to growth in late 2021 and early 2022 does seem unavoidable now, but if Beijing acts decisively it could still avoid something worse. 

The next few weeks—usually the frothiest season in China’s real-estate market—will be crucial. 

Global Markets Swoon as Worries Mount Over Superpowers’ Plans

The S&P 500 closed down 1.7 percent over a number of jitters, like China’s sputtering real estate market and the phasing out of stimulus measures in the United States.

By Matt Phillips, Eshe Nelson and Coral Murphy Marcos

Investors on three continents dumped stocks on Monday, fretting that the governments of the world’s two largest economies — China and the United States — would act in ways that could undercut the nascent global economic recovery.

The Chinese government’s reluctance to step in and save a highly indebted property developer just days before a big interest payment is due signaled to investors that Beijing might break with its longstanding policy of bailing out its homegrown stars.

And in the United States, the globe’s No. 1 economy, investors worried that the Federal Reserve would soon begin cutting back its huge purchases of government bonds, which had helped drive stocks to a series of record highs since the coronavirus pandemic hit.

The sell-off started in Asia and spread to Europe — where exporters to China were slammed — before landing in the United States, where stocks appeared to be heading for their worst performance of the year before a rally at the end of the trading day. 

The S&P 500 closed down 1.7 percent, its worst daily performance since mid-May, after being down as much as 2.9 percent in the afternoon.

The catalyst for the swoon was the continued turmoil at China Evergrande Group, one of that country’s top three developers of residential properties. 

The company has an estimated $300 billion in debt, and an interest payment of more than $80 million is due this week.

Analysts said Evergrande’s plight was severe enough that it would be unlikely to survive without Chinese government support. 

“The question is to what degree are there spillover risks within Chinese equities and then cascading into the global markets,” said John Canavan, lead analyst at Oxford Economics.

Few entities move markets the way the American and Chinese governments can, by their actions and inaction, and the worldwide tumble on Monday made this clear. 

Until recently, investors seemed content to ignore a variety of issues complicating the recovery — including the emergence of the Delta variant and the supply chain snarls that have bedeviled consumers and manufacturers alike.

But beginning this month, as Evergrande began to teeter and the likelihood of the Fed’s scaling back — or tapering — its bond-buying programs grew, the market’s protective bubble began to deflate. 

Some U.S. investors are also concerned that tax increases are in the offing — including on share buybacks and corporate profits — to help pay for a spending push by the federal government, the signature piece of which is President Biden’s proposed $3.5 trillion budget bill. 

Separately, Congress also must act to raise the government’s borrowing limit, a politically charged process that has at times thrown markets for a loop.

On Monday, those currents combined, reflecting the interconnectedness of the global markets as investors everywhere sold their holdings.

The decline was ugliest in Asia, where Evergrande’s woes — its shares fell 10.2 percent — dragged down other Chinese real estate companies’ stocks by 10 percent or more. 

Markets on the Chinese mainland were closed for the day, but Hong Kong’s Hang Seng index fell 3.3 percent.

For decades, Chinese growth was driven by investment in infrastructure, including the market for residential property, which was financed with huge sums of borrowed money. 

Banks often lent to developers at the direction of the government, which looked at property building as a source of jobs and economic growth.

Cranes at the construction site of an Evergrande housing complex in Beijing this month.Credit...Greg Baker/Agence France-Presse — Getty Images

“Beijing says lend, so you lend; when or even whether you get your money back is secondary,” wrote analysts with China Beige Book, an economic research firm.

Many lenders therefore viewed companies such as Evergrande as having an implicit guarantee from the government, meaning that if the company couldn’t pay its debts, the government would ensure creditors get repaid.

Now that understanding is being tested. 

The company doesn’t seem to have the cash for the interest payment due this week, and credit markets are largely closed to the firm. 

Few expect it will be able to pay up on its own, but so far the Chinese government hasn’t moved conclusively toward a bailout.

The uncertainty around Evergrande is just the latest question investors have faced this year, as the Chinese government has shown signs of sharply shifting away from the policies that have guided its economy for much of the last decade.

Shares of Chinese technology giants including Alibaba have been hammered this year, as Beijing has flexed its regulatory muscles on issues including data privacy. 

But the implications for China’s shifting policies reach beyond its borders.

Curbs on steel production over environmental concerns have driven down prices for iron ore, which has fallen more than 40 percent over the last three months. 

And global prices for crude oil — China is the world’s largest importer of petroleum — dropped 1.9 percent on Monday.

The price of copper, used in wiring and a hot commodity for Chinese property developers, fell more than 3 percent, weighing on producers worldwide. 

On U.S. exchanges, industrial stocks that are closely linked to China also fell. 

Freeport-McMoRan, a copper and gold mining giant based in Phoenix, was one of the worst-performing stocks in the S&P 500, falling 5.7 percent.

The elevator maker Otis, a major supplier for Chinese high-rises, dropped more than 2 percent. 

And the construction equipment maker Caterpillar, whose second biggest market is China, was down 4.5 percent.

Looming decisions by policymakers at the Federal Reserve and in Congress are also weighing on stock market sentiment, analysts say.

On Wednesday, the Fed is expected to signal that it plans to begin reducing its purchases of government bonds, which have pumped trillions of dollars into financial markets since the Covid crisis started in March 2020.

Substantial deficit spending by the federal government has helped supercharge growth and prop up corporate profits during the pandemic. 

But with much of that money spent, investors are now closely watching the $3.5 trillion spending plan Democrats are trying to push through Congress.

There are signs that they are becoming less certain about the bill’s passage. 

This month, share prices for companies whose businesses would benefit from another jolt of federal spending have slumped, such as large engineering and construction firms.

The New York Stock Exchange in Manhattan on Monday. Credit...Dave Sanders for The New York Times

Dycom, which specializes in construction and engineering of telecommunication networking systems, is down nearly 11 percent since the end of August. 

Fluor, another engineering and construction company that has a large government contracting business, is down about the same. 

Alternative energy stocks such as Enphase Energy and Bloom Energy have also dropped.

Investors are also increasingly focused on when Congress will raise the debt ceiling, a formerly perfunctory budgeting exercise that has become increasingly politicized. 

In 2011, the rancorous debate about increasing the debt limit was accompanied by a sharp market slump, as representatives in Washington appeared to flirt with the idea of not raising the constraint on borrowing, which would effectively amount to a default on Treasury bonds.

“It’s going to be drama for the sake of politics,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. 

“People don’t like that.”

Matt Phillips covers financial markets. Before joining The New York Times in 2018, he was editor in chief at Vice Money and a founding staffer at Quartz, a business and economics website. He also spent seven years at The Wall Street Journal, where he covered stock and bond markets. 

Eshe Nelson is a reporter in London, where she writes about companies, the British economy and finance. 

Coral Murphy Marcos is a business reporter. 

Evergrande: predictability of defaults reduces contagion risk

The likeliest scenario is that shareholders will be wiped out while its lenders absorb big losses

A housing complex developed by Evergrande in Luoyang, China. The group needs to pay interest of just over $100m in onshore and dollar bonds over the next few days © Reuters

This is the long-awaited week of reckoning for the world’s most indebted property developer. 

Interest payment deadlines are looming for China’s Evergrande, whose total liabilities of $306bn amount to about 2 per cent of national gross domestic product. 

The fallout is just beginning. Investors in China are scrambling to avoid contagion.

The group needs to pay interest of just over $100m in onshore and dollar bonds over the next few days. 

Local authorities have reportedly told banks not to expect repayment. 

Some Evergrande dollar bonds are trading below 30 cents on the dollar.

Developers such as Evergrande rely on specialist lenders and trust companies. 

They will be the first to feel the impact of missed payments, which may then be transmitted to banks. 

Industrial & Commercial Bank of China, Agricultural Bank of China and China Minsheng Bank are expected to have the highest exposure.

Evergrande is estimated to have taken loans from more than 120 trust companies. 

These account for about 40 per cent of its borrowings. 

It has $1.7bn worth of trust loans due in the current quarter. 

A slowing mainland property market, with home sales down a fifth in August, could compound problems as the value of assets falls.

Fears of contagion have spread to Hong Kong property developers. 

The city’s real estate market has been booming. 

Home prices rose to a record high in August. 

Unlike indebted mainland developers, Hong Kong peers have healthy balance sheets. 

The debt to equity ratio of Sun Hung Kai, Hong Kong’s largest property developer, stands at below a fifth, compared with 140 per cent for Evergrande.

The problem is that Hong Kong developers have bet big on mainland properties in recent years. 

These assets have offered a high-growth hedge against political risk, weak retail rents and empty hotels in Hong Kong.

Mainland China accounted for nearly a third of Sun Hung Kai’s profits from property sales in the year to June, tripling from the previous year. 

Peer Henderson Land’s pre-tax underlying profit from mainland properties more than doubled last year. 

Shares that once looked attractive for their discount of about 50 per cent to net asset value should now be avoided.

The likeliest scenario is that Evergrande shareholders will be wiped out while its lenders absorb big losses. 

Evergrande has been an over-indebted outlier for years. 

Few defaults have been prophesied as frequently and often.

That should help China to contain contagion.

Covid-19 Vaccine Booster Shots Are More Complicated Than They Appear. Here’s Why.

By Jaimy Lee, MarketWatch

Lauren DeCicca/Getty Images

Not everyone agrees that Covid-19 booster shots are necessary for all vaccinated Americans, and that discord may slow down plans to roll out extra doses of the mRNA vaccines later this month and change who is eligible for them.

Dr. Sara Oliver, a Centers for Disease Control and Prevention official who leads the Covid-19 vaccines work group, on Monday said the “priority for booster dose policy should be the prevention of severe disease in at-risk populations,” citing nursing-home residents and frontline healthcare workers as examples. 

The presentation was part of a meeting of the CDC’s Advisory Committee on Immunization Practices, or ACIP, a group of independent public health experts who make recommendations about vaccines to the CDC following authorization or approval from the Food and Drug Administration. 

White House officials, including President Joe Biden, last month said that Americans who were vaccinated with the vaccines from BioNTech (ticker: BNTX) and Pfizer (PFE) or Moderna (MRNA) can get a booster dose starting Sept. 20, as long it has been eight months since the person has been fully vaccinated, the FDA authorizes or approves the booster, and the CDC gives its blessing. They said the first boosters will likely go to groups of people who are at higher risk of severe disease. 

(The White House also said that people who got Johnson & Johnson’s  single-shot vaccine will likely need a second dose, though no further details have been shared at this time.)

That said, U.S. regulators have yet to OK a booster dose for the general public, and that has become a point of contention for some public health experts.

The Biden administration’s announcement “led everyone—it led physicians, it led the public—to believe that they had access to information about these vaccines and the need for boosters that had not yet been publicly released,” Dr. Sandra Adamson Fryhofer, an adjunct associate professor of medicine at Emory University School of Medicine, said Monday. “To me, that opened the door to a lot of confusion.”

Fryhofer serves as a liaison to ACIP for the American Medical Association.

Federal health officials have said they are concerned that the vaccines will soon be less effective at protecting people against severe disease, hospitalization and death, and that is their rationale for booster shots.

Asked about the ACIP’s booster discussion on Tuesday, CDC director Dr. Rochelle Walensky responded that the committee had only evaluated U.S. data so far.

“It is our own data as well as international data that has led us to be concerned that the waning we’re seeing for infection will soon lead to waning that we would see for hospitalization and severe disease and death,” she said.

However, infectious-disease physicians have previously told MarketWatch that clinical decisions for Covid-19 booster shots should be based on data that’s available, not what’s projected to happen. 

What’s changed in the Covid-19 booster discussion

The national discourse around boosters has intensified over the last two months, driven by public promotion from Pfizer and Moderna, the Biden administration’s sudden support, and widespread utilization of extra doses in Israel, which is being closely watched by scientists to see how virus behaves in the highly vaccinated country. 

At the same time, cases have steadily increased in the U.S. since early July, as immunity has waned over time and the rapid spread of the more infectious delta variant has led to an increase in infections among the unvaccinated as well as the vaccinated. 

This was reiterated by Oliver at Monday’s meeting.

“All [Covid-19] vaccines remain effective in preventing hospitalization and severe disease, but they may be less effective in preventing infection or mild illness recently,” she said. “These reasons for lower effectiveness likely include both waning over time and the delta variant.”

However, most of the soaring numbers of hospitalizations and deaths we are seeing right now are occurring in unvaccinated Americans. 

“The data to date doesn’t show a remarkable reduction in the effectiveness of vaccines in terms of preventing hospitalizations and deaths,” Dr. Beth Bell, a clinical professor at the University of Washington’s School of Public Health and an ACIP member, said Monday. “The most important thing that we can do with respect to vaccines is to continue to work as hard as we possibly can to encourage more people to get the primary series.”

What exactly is a Covid-19 booster shot?

This is where things get complicated.

The CDC does not refer to an extra dose administered to the immunocompromised as a booster shot. Instead, that is considered a third—or extra—dose because many of those people never mounted an immune response at all to initial vaccination, according to Oliver. (The only Americans who are currently eligible for an extra dose of the BioNTech/Pfizer vaccine— now marketed as Comirnaty—or the Moderna vaccine are some teens and adults with compromised immune systems, an authorization that was granted in August.)

The agency defines a booster dose as one that “boosts” immunity from a vaccine’s “primary series” that has waned over time.

There are also different kinds of boosters. A homologous booster uses the same vaccine, while a heterologous booster uses a different vaccine for the booster from that used in the primary series.

Several “mix and match” clinical trials are already under way around the world, including one conducted by the National Institutes of Health that is testing a Moderna booster in people who received any of the three authorized or approved COVID-19 vaccines. 

In addition, drug makers are testing different doses of the vaccines in booster trials.

There is one more one idea to consider: that perhaps the two-dose Covid-19 vaccines will actually become three-dose vaccines. (Dr. Paul Offit, director of the Vaccine Education Center at Children’s Hospital of Philadelphia, told MarketWatch in August that this seems to be the White House’s plan. His view is that officials there are saying, ” ‘Let’s not wait for an erosion against severe illness. We’ll just offer a booster now, with the assumption being with that this will be a three-dose vaccine.’ “)

Other vaccines including the human papillomavirus (HPV) and hepatitis B shots require three doses, spaced out over a year or so. For example, the third dose of the hepatitis B vaccine can be administered up to 18 months after the first dose.

“In a pandemic setting, it can be important to achieve high protection early with a second dose given at a shorter interval, however it may mean that a later dose for this boost effect is needed as well,” Oliver said. “This doesn’t necessarily mean that an annual booster dose would be needed.”

What comes next

BioNTech and Pfizer said last week that they had submitted data for a Comirnaty booster shot to the FDA. That data examined antibody levels in adults who got a third dose between four and eight months after initial vaccination.

Moderna and J&J have both said that booster doses can increase antibody levels among people immunized with their vaccines, though neither company has submitted that data to U.S. regulators at this time. 

The ACIP is expected to meet again in mid-September, or if and when the FDA authorizes or approves a third dose of one of the vaccines, to discuss how COVID-19 booster shots should be administered to the public. Monday’s meeting focused on setting out a framework for booster shots in the U.S.

BioNTech/Pfizer, J&J and Moderna will be asked to present clinical data for booster doses at coming meetings. 

“We read this meeting timing and the additional dose (‘booster’) discussion as an indication that uptick in third doses may not come as rapidly as investors have been expecting,” SVB Leerink analyst Daina Graybosch told investors on Tuesday. 

Jefferies analysts took a much more narrow view of the meeting, telling investors that they think the committee is leaning toward only recommending booster doses for high-risk populations like healthcare workers and the elderly. 

“The ACIP still appears to be hesitant on whether [additional] doses are needed despite waning antibodies and increasing infections,” they wrote.